Daily Brief: Tencent’s Stock Is Down 40%, But There’s A New Tech King In Town…

Daily Brief: Tencent’s Stock Is Down 40%, But There’s A New Tech King In Town…

over 2 years ago3 mins

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Tense times for Tencent: the Chinese internet giant stepped into the spotlight on Wednesday and delivered fluent earnings – but it stumbled when it came to sales growth.

What does this mean?

Tencent’s revenue was up 20% last quarter compared to the same time last year – not bad, but still its smallest rise since 2019, with the Chinese government’s expanding tech crackdown likely hitting Tencent’s mobile gaming empire.

Gaming slows

A $3 billion gain on its investment portfolio meant profit nevertheless grew by a better-than-expected 29%. Come its next set of quarterly results, however, Tencent might be announcing investment losses. The company is a big backer of Chinese for-profit education startups like Yuanfudao and VIPKid – and a radical overhaul of the industry last month banned such firms from, er, making a profit. Not only is that likely to undercut their valuations, but Tencent may now be stuck with these unattractive unlisted shares: with China’s new rules also banning such companies from “going public”, its only way out is to find some other private investor to sell them to.

Why should I care?

For markets: Tencent none the richer.

Tencent’s own share price is down more than 40% from the all-time highs it hit in February. While the company isn’t being specifically targeted, its outsized influence in the modern Chinese economy has left it vulnerable to a government crackdown that’s rapidly expanded to cover data security and online content. Worried investors around the world have been selling the company’s stock as a result.

Market cap comparison

The bigger picture: There’s a new king in town.

With tens of billions of dollars knocked off Tencent’s market capitalization, it’s no longer Asia’s most valuable company: that crown now belongs to TSMC. The world’s largest contract manufacturer of microchips has been reporting bumper profit recently thanks to the global chip shortage, and investors have sent the Apple supplier’s stock up accordingly.

Keep reading for our next story...

Lowe’s And Target Scored Better-Than-Expected Results

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American retailers Target and Lowe’s both issued quarterly earnings on Wednesday that hit the spot – but only one company was left feeling like a big shot.

What does this mean?

Target’s revenue rose 9.5% last quarter compared to the same period in 2020, driven by strong foot traffic in stores and a boost in back-to-school (rather than back-to-screen) spending. But investors still weren’t happy, sending Target’s stock down almost 2%: the chain’s all-important online sales grew “only” 10%, versus a pandemic-fueled 195% this time last year.

Target sales

Home improvement retailer Lowe’s, meanwhile, posted a 1.6% drop in same-store sales compared to the second quarter of 2020, when the DIY market was in full swing with people stuck at home. Looking forward, however, Lowe’s increased its sales forecast for the rest of the year by 7%. Investors bought the story and sent the company’s shares up 10% in response, realizing that they may have been too hasty in lumping in Lowe’s with rival Home Depot on Tuesday.

Lowe’s stock
Source: Google Finance

Why should I care?

For markets: More arrows in the quiver?

Target’s share price is up around 40% so far this year, compared to Lowe’s 25%. Companies like the latter were star stocks in 2020, thanks to all those locked-down consumers confined to homes in need of a lick of paint. But with the great economic reopening now well under way, investors are questioning whether they can continue to deliver. Target’s in another boat entirely: its stores sell just about everything under the sun, meaning it’s more likely to benefit from people getting out and about again.

The bigger picture: Ready, aim, buy.

Both Target and Lowe’s unveiled new share buyback programs on Wednesday, worth $15 billion and $9 billion respectively. That’s great news for investors: a company buying its own shares reduces overall market supply, meaning each remaining share represents a greater portion of ownership. Assuming demand is constant, this provides an immediate boost to the company's share price – and to investors' portfolios.

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